A virtual organization is one whose employees are spread geographically and communicate via phone, email, and the internet. The concept explores technologies and issues surrounding virtual organizations from a knowledge management perspective.
The Virtual Organization is a flexible network of independent entities linked by telecommunication and computing technologies to share skills, knowledge and access to expertise in non-traditional ways. It is a form of cooperation involving companies, institutions and/or individuals delivering a product or service on the basis of a common business understanding. Units participate in the collaboration and present themselves as a unified organization.
Examples of virtual organizations
Private sector
- Hollywood
- British Telecom
- Reuters Holdings
- Aventis
- Center for Culture & Global Studies
Public sector
- United States Department of Agriculture (USDA) National Plant Data Center
- United States Department of Energy (The Office of Science Integrated Support Center)
- Emics and OphSmart
Characteristics:
A virtual organization has the following characteristics:
1. Flat organization
2. Dynamic
3. Informal communication
4. Power flexibility
5. Multi-disciplinary (virtual) teams
6. Vague organizational boundaries
7. Goal orientation
8. Customer orientation
9. Home-work
10. Absence of apparent structure
11. Sharing of information
12. Staffed by knowledge workers.
Types of Virtual Organization
- Telecommuters
- Outsourcing employees/competencies
- Completely virtual
Telecommuters:
These companies have employees who work from their homes. They interact with the workplace via personal computers connected with a modem to the phone lines. Examples of companies using some form of telecommuting are Dow Chemicals, Xerox, Coherent Technologies Inc., etc.
Outsourcing Employees/Competencies:
These companies are characterized by the outsourcing of all/most core competencies. Areas for outsourcing include marketing and sales, human resources, finance, research and development, engineering, manufacturing, information system, etc. In such case, virtual organization does its own on one or two core areas of competence but with excellence. For example, Nike performs in product design and marketing very well and relies on outsources for information technology as a means for maintaining inter-organizational coordination.
Completely Virtual:
These companies metaphorically described as companies without walls that are tightly linked to a large network of suppliers, distributors, retailers and customers as well as to strategic and joint venture partners. Atlanta Committee for the Olympic Games (ACOG) in 1996 and the development efforts of the PC by the IBM are the examples of completely virtual organizations.
Advantages of a Virtual Organization
- Lower Overhead Costs. Virtual organizations enjoy significant decreases in operating costs. Aetna was able to shed 2.7 million square feet of office space and save $78 million due to a shift toward virtual teams and remote work. American Express also enjoyed lower overhead costs to the tune of nearly $15 million thanks to a focus on hiring remote workers.
- Improved Employee Satisfaction. Employees are simply happier when they are able to work from home. 82% of remote workers have reported that they have lower stress levels. The study also showed that a shift toward remote work led to fewer absences and a higher morale.
- Improved Employee Efficiency. Remote employees get more work done without the transactions of the office. 30% of workers in a recent survey stated that working remotely allowed them to accomplish more in less time.
- Improved Scalability and Growth Potential. Without the overhead typically associated with maintaining an office space and fewer investments in supplies, companies can free up capital to improve their scalability and growth potential. Remote teams are simply more agile.
- Larger Talent Pool. Startups who hire workers remotely are able to access a larger pool of talent. You can hire talent from anywhere in the world without limiting yourself to one specific geographic location.
- Improved Employee Retention. Employees that are happier in their work are more likely to stick around. With competitive salaries, remote workers are less likely to leave their jobs.
- Access to New Markets. Hiring remotely allows your startup to tap into new markets. This is particularly useful when it comes to remote sales teams, who will be able to reach out to new customers that otherwise would have been out of reach for your organization.
Disadvantages of a Virtual Organization
- Lack of Camaraderie. Remote workers rarely speak face-to-face. Even companies that make full use of video chat solutions often find that it isn’t enough to fully simulate the camaraderie that you build when you work together in an office environment. There is less opportunity for impromptu conversations. You learn less about the people that you work with. Companies with remote teams need to take steps to bring their teams together and facilitate that togetherness.
- A Need for Increased Focus on Communication. Because your teams will not be able to pass information between themselves like they would in an office environment, you need to give them the tools and policies that ensure that they actively communicate. Whether that means setting up a slack channel, getting on daily calls, or simply encouraging them to email each other new information often — communication plays a key role in the success of virtual organizations.
- Reputational Risks. A poorly run virtual team can lead to knocks to your reputation. Some potential customers may be wary of working with a company that has a virtual office with remote employees and may not take your startup as seriously.
- Security and Compliance Issues. Working remotely means passing a lot of data back and forth. In some industries (health, financial, etc.) it may be too risky for startups to opt for a virtual organizational design.